401(k) Rollover Options

Considering a 401(k) rollover?
Consider your options first.

One great thing about a 401(k) retirement savings plan is that your assets are often portable when you leave a job. But what should you do with them? A rollover to an IRA (Individual Retirement Account) is one way to go, but you should consider your options before making a decision. There are several factors to consider based on your personal circumstances. The information provided here can help you decide.

If you decide a rollover is right for you, we’re here to help. Call a Rollover Consultant at 866-855-5636.

Choosing this option means you don't have to make an immediate decision about where to move your savings. Your account stays subject to your previous employer's plan rules, including investment choices, costs, and withdrawal options.

Pros

You may have access to investment choices, loans, distribution options, and other services and features that are not available with a new 401(k) or an IRA.

You still have the option of rolling over to an IRA or to a 401(k) offered by a new employer in the future, if the new employer's plan accepts rollovers.

Your former employer may offer additional services, such as investing tools and guidance.

Under federal law, assets in a 401(k) are typically protected from claims by creditors.

Your former employer's plan may have lower administrative and/or investment fees and expenses than a new 401(k) or an IRA.

You may be able to take a partial distribution or receive installment payments from your former employer's plan.

If you leave your job between ages 55 and 59½, you may be able to take penalty-free withdrawals.

Required minimum distributions (RMDs) may be delayed beyond age 70½ if you're still working.

Cons

If you hold stock in your former employer in the plan, you may have special tax or financial planning needs you should consider before rolling over your assets to a new employer’s 401(k) or an IRA.

You can no longer contribute to a former employer's 401(k).

Your range of investment choices and your ability to transfer assets among funds may be limited.

Managing savings left in multiple plans can be complicated.

The fees and expenses for your former employer's 401(k) may be higher than those for a new employer's 401(k) or an IRA.

Roll over your money to a new 401(k) plan, if this option is available.

If you're starting a new job, moving your retirement savings to your new employer's plan could be an option. A new 401(k) plan may offer benefits similar to those in your former employer's plan. Depending on your circumstances, if you roll over your money from your old 401(k) to a new one, you'll be able to keep your retirement savings all in one place. Doing this can make sense if you prefer your new plan's features, costs, and investment options.

You can consolidate multiple retirement accounts into a single Roth IRA to simplify management.

Cons

You can't borrow against a Roth IRA as you can with a 401(k).

Any Traditional 401(k) assets that are rolled into a Roth IRA are subject to taxes at the time of conversion.

You may pay annual fees or other fees for maintaining your Roth IRA at some companies, or you may face higher investing fees, pricing, and expenses than you did with your 401(k).

Some investments offered in a 401(k) plan may not be offered in a Roth IRA.

Your IRA assets are generally protected from creditors only in the case of bankruptcy.

Rolling over company stock may have negative tax implications.

Take a cash distribution.

While withdrawing all of your money may seem like a good idea in the short-term, be sure you understand the consequences before you do. Money withdrawn will be taxable and subject to a mandatory 20% federal withholding rate. You may also face early withdrawal penalties.

Need help planning for retirement?

The information above is for general informational purposes only and should not be considered a recommendation of any of the above options or as specific individualized tax, legal, or investment advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.

1. With a tax-deferred investment, your earnings can grow tax-free until you withdraw them. This means that instead of paying taxes on returns as they grow, you pay taxes only at a later date. IRAs and deferred annuities are common tax-deferred investments.

2. Tax-free withdrawals of earnings are permitted five years after the first contribution that created the account. Once the five-year requirement is met, distributions, if taken, will be free from federal income taxes: (1) after age 59½; (2) on account of disability or death; or (3) to pay up to $10,000 of the expenses of purchasing a first home. Withdrawals that do not meet these qualifications will be subject to ordinary income taxes and a 10% federal tax penalty.